1. For product M, a firm has an annual holding cost that is 25% of the item cost
ID: 337512 • Letter: 1
Question
1. For product M, a firm has an annual holding cost that is 25% of the item cost, an ordering cost of $10 per order, and annual demand of 1560 units. If ordering at least 85 units, the price per unit is $16; if ordering at least 95 units, the price per unit is $14.5. Lead time is 5 days. The firm operates 260 days.
a) Determine the most cost-effective ordering quantity
b) What is the total cost for the order quantity determined in a).
c) Calculate reorder point
Summarize the inventory policy based on your calculation results
Explanation / Answer
1. For product M, a firm has an annual holding cost that is 25% of the item cost, an ordering cost of $10 per order, and annual demand of 1560 units. If ordering at least 85 units, the price per unit is $16; if ordering at least 95 units, the price per unit is $14.5. Lead time is 5 days. The firm operates 260 days.
a) Determine the most cost-effective ordering quantity
b) What is the total cost for the order quantity determined in a).
c) Calculate reorder point
Summarize the inventory policy based on your calculation results